Singapore Airlines Deal Boosts Air New Zealand Markets

Not content with growing through fleet expansion, Air New Zealand is the latest airline to follow the global trend of using “metal-neutral” joint ventures to take advantage of larger international networks.

The carrier's proposed strategic partnership with Singapore Airlines (SIA) will see the pair revenue-sharing on flights between their countries, and code-sharing on their networks beyond these points. The deal is similar to the one forged by Qantas with Emirates last year and the many strategic alliances established by Virgin Australia—including some with Air New Zealand and SIA.

The partnership is the most significant move yet by Air New Zealand's CEO Christopher Luxon, who took over at the beginning of 2013. It has its roots in a wide-ranging review of international operations that began while Luxon was head of the international unit and Rob Fyfe was CEO. This has already resulted in Air New Zealand switching from Japan Airlines to All Nippon Airways (ANA) as a Japanese partner, but Luxon has long stressed that other alliance moves were in the cards.

With Air New Zealand launching flights from Auckland to Singapore as part of the deal, the two airlines will significantly boost capacity on this shared route. But the most important feature of the agreement for Air New Zealand is that it extends its reach into Southeast Asia, as well as adding new destinations in Europe and other crucial international markets.

Luxon tells Aviation Week that Southeast Asia is currently the most obvious “white space” in the airline's network. He notes that SIA has strong connectivity in this region through mainline service and its SilkAir subsidiary, and their agreement allows Air New Zealand to benefit from that.

The carriers plan to introduce the joint venture services as early as December, and toward that end, Luxon says they are hopeful that New Zealand and Singapore regulators will approve the arrangement by midyear. A spokeswoman for New Zealand's Ministry of Transport says that while there is no statutory timeframe for it to make a ruling,“decisions on previous applications of a similar nature have generally been made within six months.”

Singapore Airlines already operates 12 flights a week to Auckland and daily service to Christchurch, New Zealand. Air New Zealand does not have flights to Singapore, but will take over five weekly flights from Auckland that SIA currently operates. It will add two more flights to give both airlines daily service on this route.

SIA will replace Boeing 777-300ERs with AirbusA380 service on the Auckland route, on a seasonal basis initially. This will make it the second carrier—after Emirates—to fly A380 routes to New Zealand. Combined, the Singapore-Auckland changes will increase capacity on this route by up to 30%.

From the SIA perspective, the alliance will allow it to further strengthen its presence in the Australasian market, which is among its most important. An SIA spokesman dismisses suggestions that Air New Zealand has most to gain from the deal. Together, the two airlines will have more frequencies between Singapore and New Zealand than either carrier could operate individually, he says. “Each of us is able to expand our network and there will be [extra] feed into both carriers' flights.”

While SIA does not reveal market-specific statistics, the revenue-sharing arrangement is not in response to any performance issues on the Auckland route, says the spokesman.

Singapore has been served by Air New Zealand previously, but the carrier pulled out in 2006 because it was losing too much money on the route. The deal with SIA ensures that leg will now be more viable, Luxon says. For example, the two airlines will be jointly marketing the service from both ends.

Air New Zealand will deploy Boeing 777-200ERs on the Singapore route. The aircraft will become available due to the three Boeing 787-9s the airline is scheduled to take delivery of in the second half of this year.

The Auckland-Singapore route is also served by Qantas subsidiary Jetstar Airways, using Airbus A330-200s. The addition of more capacity will not cause it to alter its plans, a Jetstar spokesman says. “Jetstar is the only dedicated [low-cost carrier] on the route and it is business as usual for us.”

Apart from Southeast Asia, the SIA arrangement also will give Air New Zealand improved access to Europe, India and South Africa.

The code-share services to Europe will not dent demand for Air New Zealand's existing flight to London via Los Angeles, says Luxon. Rather, the carrier will now be able to offer connecting flights via Singapore to European markets that are not on its network, such as Italy. This allows the airline to broaden its offering without using its own aircraft, as it does not want to add more ultra long-haul one-stop flights.

Although Air New Zealand code-shares with several airlines, SIA and existing partner Virgin Australia will be its “cornerstone” alliances, says Luxon.

Air New Zealand's agreement with Hong Kong-based Cathay Pacific—introduced in late 2012—will be unaffected by the Singapore deal. This is a comparatively limited arrangement that mainly focuses on Cathay's China routes. The China market will be “carved out” from the SIA agreement, says Luxon. The Japanese market, where Air New Zealand partners with ANA, is another that will be excluded.

Similarly, Australia will not be covered by the alliance. While SIA and Air New Zealand are major shareholders in Virgin Australia, and both partner with it, these links were not part of the new strategic partnership discussions, Luxon says.